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Memorandum of Agreement - Friendly Ice Cream Corp. and Paul J. McDonald

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                             MEMORANDUM OF AGREEMENT


         This acknowledges and documents our mutual agreement concerning your
separation from Friendly Ice Cream Corporation ("Friendly's") effective November
30, 1999 ("Separation Date"). This agreement will confirm various matters
concerning your separation and the cessation of your work on November 30, 1999
in anticipation of your retirement on December 1, so that no misunderstanding
exists between you and Friendly's.


         Friendly's will continue to pay you semimonthly after you cease work on
November 30, 1999, at your current base rate of pay (including car allowance and
4% Executive Match) until September 30, 2000. The payment you receive will be
subject to appropriate statutory wage deductions and such other deductions
normally made for employees of Friendly's. In addition, any financial obligation
you have to Friendly's will be deducted. Any earned and unused vacation for 1999
will also be paid to you on November 30, 1999.


         You will be eligible to participate in the short-term disability,
accidental death and dismemberment, long-term disability, pension plan,
Supplemental Executive Retirement Plan (SERP) and such other plans in which you
may currently be enrolled until November 30, 1999, as outlined under the terms
and conditions of these plans.


              Your group medical/dental insurance will be continued in effect
until the earlier of either 1) the date of your retirement or, 2) September 30,
2000. When you retire, you are eligible to participate in the medical insurance
coverage available to retirees who retire from active employment. The premium
for this retiree medical insurance will be paid by Friendly's until September
30, 2000, and by you thereafter. In addition, Friendly's will pay you on
December 15 a lump sum equivalent to the total premiums for group dental
coverage under COBRA for the period from December 1, 1999 through September 30,
2000. The Key Executive Physical Examination Program will be in effect and may
be utilized by you until December 31, 1999 and any related medical fees will be
grossed up for tax purposes for the current program. Any questions about such
insurance or coverage should be referred to Kathy Croteau on extension




         You will be eligible to participate in the Annual Incentive Plan
("AIP") for 1999 in accordance with the terms of the AIP plan, even though you
will not be actively at work. Any payment made to you under the Plan will be
made at the same time as the payment to all other participants in early 2000,
based on Board approval.


         You are covered under the terms and conditions of the stock plans
for which you are eligible. A qualified company representative will explain
these terms to you. Your shares in the MANAGEMENT STOCK PLAN are
nonforfeitable. Your LIMITED STOCK PLAN shares are also nonforfeitable, but
there are current restrictions on disposition or transfer of the shares in
accordance with the terms of the contract between you and Friendly's. These
restrictions will be eliminated effective January 1, 2000.

         With respect to the 1997 RESTRICTED STOCK PLAN, either twelve and one
half percent (12-1/2%) or twenty-five percent (25%) of the unvested shares are
scheduled to vest for all participants who are employed at the time of vesting
with the acceptance of the 1999 financial results by the Board in early 2000, in
accordance with the terms of the Plan. Subject to the approval of the Board of
Directors, the shares granted to you will vest at the same time as other
participants, even though you will no longer be actively employed at the time.

Your unvested shares in this Plan will thereafter be forfeited.


         Life insurance provided originally through Confederation Life Insurance
Company and now by Pacific Mutual Life Insurance Company is unaffected by your
leaving employment because it is your own personal policy. Payments by
Friendly's on your behalf will cease as of September 30, 2000. Questions about
coverage thereafter or about other matters related to this policy should be
referred to Mr. Michael Lucey of the AYCO Corporation at (518)373-7739.


         You will be provided with a financial service consultation session by a
representative of AYCO Corporation. This will include preparation of your 1999
Income Tax returns and a consulting session for the purpose of your estate
planning. The AYCO fees will be grossed up


                                                                     Page 2 OF 4

for tax purposes consistent with the current program for eligible officers.
Please contact Gary Ulrich to arrange for these services.


         In consideration of the terms set forth in this letter, you agree:

         1.   Without our prior written consent, you will forever refrain from
         disclosing or confirming, either directly or indirectly, any
         information concerning insurance, loss claims, loss payments, safety
         and health conditions, financial condition, strategic planning or other
         information relating to Friendly's and its subsidiaries, divisions,
         parents and affiliates, their agents, employees, directors and officers
         which you learned or became aware of since the inception of your
         employment with Friendly's except for information which is generally
         known by the public.

         2.   You will turn over to Friendly's any documents, manuals, plans,
         equipment, business papers, computer diskettes or copies of the same
         relating to Friendly's and its subsidiaries, divisions, parents and
         affiliates, their agents, employees, directors and officers which are
         in your control or possession.

         3.   You will forever refrain from taking any legal action against
         Friendly's and its subsidiaries, divisions, parents and affiliates,
         their agents, employees, directors and officers, specifically including
         the release in full from any and all wage-and-hour, discrimination,
         wrongful termination and/or equal employment opportunity claims whether
         state, federal or local whether in contract, tort or otherwise and
         including without limitation those arising under the Age Discrimination
         in Employment Act of 1967, as amended (the "ADEA") and further
         including any related claims for attorney's fees.

         4.   If you breach any of the terms of this Agreement, Friendly's is
         entitled to recover from the other all costs, fees, and expenses
         (including attorneys fees) -

              (i)  arising from your breach of this Agreement, and

              (ii) necessary to compel the cessation of any further breach by
         you of this Agreement. Additionally, any breach of this Agreement by
         one party shall relieve the other from any further performance or
         obligations under this Agreement.

         5.   It is also agreed that you will refrain from disclosing to any
         third party the contents of this Agreement and keep the terms of this
         Agreement confidential unless required by court order or other
         governmental authority.

         6.   You agree to forever refrain from taking any action which brings
         discredit upon or disparages Friendly's.


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         7.   Friendly's shall not contest any claims made by you for
         unemployment benefits administered by any governmental agency.


         This is the entire agreement between us and any prior agreements or
understandings, whether oral or written, are entirely superseded by this
Agreement. We each have voluntarily accepted the terms as sufficient without
reservation. Pursuant to its obligations under the ADEA, Friendly's advises you
to consult with an attorney prior to executing this agreement. You have 21 days
from the date of this agreement in which to consider this agreement. In
addition, you may revoke this agreement for seven days following its execution.
This agreement shall not become effective or enforceable until the seven day
revocation period has expired.

         If the above is in agreement with your understanding, please sign and
keep one copy of this document for your records and return one copy to me.

For Friendly Ice Cream Corporation:

                                     Garrett J. Ulrich
                                     Vice President, Human Resources

ACCEPTED AND AGREED TO AS OF THIS        DAY OF                  , 1999.
                                  ------        -----------------

                                     Paul J. McDonald